FPL Group to Buy Constellation Energy

FPL Group Inc.’s purchase of Constellation Energy Group Inc. in an $11-billion stock deal announced Monday would create one of the nation’s largest energy companies and give Constellation additional power to sell through its growing energy trading business.

Juno Beach, Fla.-based FPL Group, with operations nationwide, derives most of its revenue from its utility subsidiary, Florida Power & Light. Constellation Energy, based in Baltimore, operates Baltimore Gas and Electric Co. but gets most of its sales from unregulated operations, including energy trading.

The combined company, to be called Constellation Energy, would have a market capitalization of about $28 billion, revenue of $27 billion and total assets of $57 billion.

FPL has more generation capacity and less peak demand, and Constellation, a major power trader, is in the opposite position, executives from the two companies told investors during a conference call.

“The pursuit of this transaction and why the marriage made so much sense to us is that now we can grow without constraint,” said Mayo A. Shattuck, chairman, president and chief executive of Constellation Energy Group, who will become chairman of the new company’s board.

Although some jobs might be cut, Shattuck said that he expected overall employment to grow as a result of the merger and that any job losses would be from retirements and attrition.

After the merger, about 21,750 employees would serve more than 5.5 million electricity customers in Florida and Maryland and 625,000 gas customers in Maryland.

The new company also would have the nation’s largest electricity generation portfolio, with a capacity of more than 45,000 megawatts.

Lewis Hay, chairman, president and chief executive of FPL Group, said both sides felt it was important to choose partners before industry consolidation eliminated their options.

“I think we were both vulnerable to other people taking actions that could preempt that,” he said.

Hay would become CEO of Constellation Energy.

Hay said he expected that rates paid by consumers would fall over time, but not until at least 2008.

Under the terms of the transaction, each share of Constellation Energy Group would be converted into 1.444 shares of the combined company, while each FPL share would be converted into one share of the new company.

FPL shareholders would own 60% of the combined company, and shareholders of Constellation Energy Group would own about 40%.

Based on FPL’s closing share price of $42.95 on Friday, Constellation’s shares would be valued at $11.07 billion after the deal closed.

The companies said Constellation shareholders would get a 15% premium over the average closing price over the 20 days ended Dec. 13.